Summary and Comments on Securities Industry (Corporate Governance) Amendment Bill, 2020
June 8, 2020
Nassau, The Bahamas – The Securities Industry (Corporate Governance) Amendment Bill, 2020 (the “Bill”) proposes to amend the Corporate Governance Rules, 2019 (the “CG Rules”). The CG Rules apply to public issuers, prescribed state-owned enterprises and private companies which raise funds through issuing its securities or seeking listing by introduction (collectively “public issuers”). The Bill will come into effect on the date of Gazette.[1]
1. MULTIPLE DIRECTORSHIPS
In relation to directors with multiple Board commitments [Rule 10] – the current position requires Board nominees of public issuers to make a general disclosure of their other Board memberships.[2] There is no restriction on the timing of disclosure but the Board’s nominee committee must determine whether, in light of the disclosure, the nominee would be able to effectively contribute to the performance of the Board.[3]
The Bill, on the other hand, proposes to amend the rule by requiring disclosure to be made prior to appointment and include details on: the number and nature of other memberships, and [where applicable] employment or compensated commitments to any other company. Upon such disclosure, the nominee committee of the public issuer [where established] must consider whether the disclosed memberships, employment or compensated commitments will interfere with the nominee’s effective contribution to the Board’s performance.
The Bill also proposes to insert a new Rule [10(3)] which places onus on the prospective nominee who performed disclosure and was appointed; to notify the public issuer immediately, where those disclosed commitments have been terminated. It should be noted; the new section makes it clear that this requirement to give notice of termination is in addition to existing requirements under rule 6[5] for Board members and nominees of public issuers to promptly notify the Chairman of prospective appointments to other Boards; and relationships or potential related party transactions that may affect the independence of the director or nominee.[4]
2. CONFLICTS OF INTEREST
With respect to conflicts of interest [Rule 11] – the current position requires every director, officer and external auditor of a public issuer to make written disclosure of present and potential conflicts of interest. The disclosure must include: (i) the value of material contracts[5] and payments made under such contracts where the director, officer or auditor has ownership interests, and (ii) [in the case of a director or officer] where they serve on the Board of another company that is party to an existing or proposed material contract.[6]
Under the Bill, the proposed amendments remove the requirement for external auditors to disclose conflicts of interest in writing. Written disclosures of conflicts however, remain mandatory for directors/officers. Under the amended rule, in cases where directors/officers of public issuers have ownership interests in contracts, the value of the contract must be disclosed irrespective of whether it is a material contract or not. On the other hand, where directors/officers have multiple Board commitments, they are only required to disclose material conflicts. The public issuer must then approve such material conflicts by express resolution. The director/officer disclosing must recuse themselves from the vote.
3. DISCLOSURES IN RELATION TO ACCOUNTABILITY AND REPORTING
With respect to Accountability and Reporting [Rule 22] – the current position is that the Chairman and CFO of every public issuer must certify that its financial statements are a fair and accurate assessment of the company’s affairs. Also, public issuers must annually disclose: (i) details[7] on director interests in contracts with the company, [its subsidiaries or holding companies]; and (ii) service [and significant] contracts with controlling shareholders.[8]
The Bill proposes to repeal and replace Rule 22. Under the new rule – in addition to disclosing director interests in contracts with the company and company contracts with controlling shareholders; public issuers must also disclose details of other Board memberships [and committee appointments], employment, compensated commitments and ownership interests held by its directors.
4. ANNUAL REPORTS
Under Rule 23, the current position is that public issuers must disclose in their Annual Report particulars on the company’s capital structure[9] Under Rule 22(j) the Annual Report must also contain [inter alia] details on director and significant shareholder interests in the company, its subsidiaries and affiliates.
The Bill proposes to amend Rule 23 by transplanting the current requirement in Rule 22 [with respect to certification of financial statements] to Rule 23(1) and deleting Rule 22(j). It is my view, by virtue of the proposed amendments on disclosures [as discussed in Rule 22 above] the requirement under 22(j) is made redundant as this information is already required to be annually disclosed.
[1] Section 150 (8) Securities Industry Act.
[2] Rule 10 (1) CG Rules
[3] Rule 10 (2) CG Rules
[4] Rule 6(5) CG Rules
[5] Rule 11(5) CG Rules “For the purposes of this Rule ‘material contracts’ mean contract that has a transaction value that is more than 2% of the revenues of a company]
[6] Rule 11(2) CG Rules
[7] Rule 22(2) requires such details to include the name of the director and nature and details of the contract and director’s interest therein.
[8] Rule 22(2) CG Rules
[9] Under Rule 23 (1) note the prescribed particulars on capital structure must include details on: (i) issuance of share capital during the year, (ii) borrowings and maturity dates and (iii) details and reasons for share buybacks during the year.
For more information, contact: Renee Farquharson, Associate – ref@gtclaw.com
Please note that this publication is only a guidance note and as such is for reference purposes only, it does not constitute legal advice and should not be relied upon as such. Specific legal advice about your particular circumstances should always be sought, and our legal team is available to assist you with any questions or issues that you may have.